Fast Comment ChinaMixed picture from China’s industry

The manufacturing PMI from Markit was unchanged at 51.1 from April to May, marginally weaker than expected by consensus. The official manufacturing PMI increased somewhat from 51.4 to a better-than-expected 51.9. Thus the spread between the two indices widened considerably, making it harder to conclude on the direction for China’s industry in May. Despite us generally preferring Markit’s PMI to the official one, it seems as though momentum was up rather than down in May. This is to some extent explained by the scrapping of the measures to improve air quality over the winter.

Growth should slow gradually ahead

The recent uptick in PMI and economic activity is, in our view, set to turn into a renewed gradual slowdown. As the authorities try to reign in financial risk and dampen shadow banking activities, credit growth is slowing, and hurting overall economic growth. Furthermore, measures to dampen the wobbly property market, especially in terms of prices, have not yet been rolled back, while fiscal policy is being tightened rather than loosened. Add to this the apparent slowing down of global demand, which will be exaggerated if the trade war escalates.